Send us an email.

  • This field is for validation purposes and should be left unchanged.

Public Examinations – A quick guide for directors

Part 1: What is a Public Examination?

A public examination is a process where an examiner, more often than not a liquidator or trustee in bankruptcy, however from time to time ASIC or AFSA itself, will examine a person about their own or their company’s examinable affairs. It is an open examination in court, and the process can be extremely stressful for those being examined. In this and the following 2 articles, we explain what a public examination is, how it is conducted and what you can expect.

What is a public examination?

It is essentially a process where you will be asked a series of questions by the examiner about an insolvent company’s affairs or the affairs of a bankrupt. It is an inquisitorial process, and it is significantly different to the traditional adversarial system because there is nothing to prove or disprove. A judge has a limited role in guiding the examination and they do not make any decision. It is purely a fact-finding mission. Hence it is up to the examiner to ask the relevant questions as they see fit, and use the information that they gather in the same way.

What types of public examinations are there?

The vast majority of examinations occur in connection with corporate insolvencies, so the next section of this article will deal with such examinations specifically. Namely, there are mainly two types of public examinations under the Corporations Act 2001 (Cth):

  • Mandatory examinations under section 596A; and
  • Discretionary examinations under section 596B.

 

For each type of examination, the court must be satisfied that conditions in the Corporations Act are met. The same process applies in how an examination is conducted, whether it be mandatory or discretionary.

Why am I summoned for a public examination?

It is likely that an insolvency practitioner applied for the examination because a company is insolvent and you, or someone close to you, were involved in the affairs of that company. The insolvency practitioner will seek to fill in the missing gaps in their information or to find new information.

Examinations are thus normally conducted where:

  • there is a general need to gather more information due to insufficiency or complexity of the information; or
  • it is difficult to obtain information because of uncooperative persons or the relevant documents are not available.

 

Information that you provide will assist the insolvency practitioners in their administration of the insolvent company. Ultimately, they seek to maximise benefits to the creditors and they will seek to investigate and track assets that they can sell or otherwise interrogate the value of prospects of success of claims they may pursue. The information provided may also help them to locate and recover assets that may have been unlawfully transferred.

Who can attend the examination?

An examination will be public unless in special circumstances the court orders that it be private..

Can a lawyer assist in public examinations?

You have the right to be represented at the court during the public examination. The process is likely to be stressful as it is a formal court process and especially if you do not know what you have to expect. The examination will often be associated with a production of large quantity of documents. In some cases, they may seek to litigate from the information gathered. We advise that you engage a lawyer early on to ensure that you have sound legal advice from the beginning.

Article by Stipe Vuleta & Steven Lee

by